Have Dealer Discounts Gone Too Far?

Dealer discounting for both service and sales have gone entirely too far. This discussion will focus upon service, and we’ll address sales in our next discussion.

OEMs and their franchise dealers placed a heavy emphasis on becoming competitive in the service market place dating back 25 plus years. This effort was designed to stem defection of customers to the independent repair shops, become more price competitive, and drive more traffic back to the franchise dealer. Has this strategy paid dividends to the OEMs and their franchise dealers? I would say “no.”

Franchise dealers have been so focused upon “price”, that many dealers are now priced significantly less than independent repair shops. Independent repair shops have been very savvy, and have moved their pricing up, while franchise dealers move their pricing down. Have you ever noticed how many independent repair shops, inclusive of the large chains don’t list price? The smart independent repair shop will advertise “dollar discounts”, yet they don’t list prices like the franchise dealer. The franchise dealer must stop listing price, stop lowering price, and please stop advertising $29.95 LOF.

Compare Jiffy Lube to your service specials, and note there isn’t any pricing, only “dollar discounts.” Here’s a random Independent Repair Shop, note how the service specials are displayed. While the franchise dealer is promoting price, the savvy independent is promoting convenience, has higher pricing, and continues to take market share.

General rule of thumb is that a service department will spend 3% or less of customer pay labor sales on discounting. If a dealer generates $500k/month in customer pay labor, then your average dealer will spend approximately $15k/month in service discounts. I believe this methodology is flawed. Industry data supports that the franchise dealer is losing the service retention battle, yet we continue to advertise service specials in the same fashion as we did 25 years ago.